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Nicole Gelinas
Farewell to the Free Market? « Back to Story

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Responding to Ike who said: "From a slightly different perspective, all government intervention consists in favoring one group of men and women over all others."

Ike, over the course of 40 working years, I saved for my retirement in a 401K. I had $14,000 in SECURED GM Corporate bonds at the time GM filed bankruptcy. My financial adviser told me not to worry, that GM had 80 cents of assets for every dollar of SECURED debt. Note: Under U.S. Bankruptcy law, SECURED debtors are first in line, UNSECURED debors, i.e. general stockholder, last.

Well, somehow the government lawyers ignored U.S. Bankruptcy law. I got 10 cents on the dollar and the UAW wound up owning 40% of the new GM recapitalized with taxpayer money.

The banks didn't squak about their losses because they had just taken hundreds of billions of loans. But the message is: Commercial law in the U.S. is now political. Government lawyers acted like muscular partisans, moving billions of dollars from an unfavored group to a favored group - the auto unions.

What property is safe anymore?

"In the years leading up to 2007, the rules necessary to govern a flourishing market economy broke down, producing a financial and economic crisis."

the lead of this apologia...

"...the rules necessary to govern a flourishing market economy broke down..."

fronts for the criminal behavior of those responsible.

the rules did NOT break down as if by an act of god!

the rules were eliminated or changed as a willful premeditated act to benefit a specific subset.

read the history of Phil and Wendy Gramm the latter now comfortably ensconced as a professor emeritus at an institution of higher learning that is a wholly owned subsidiary of Koch Industries.

if the author believes another bubble in capitalism's boom and bust "business cycle" is what passes for "...a flourishing market economy..." there really is nothing to say nor reason to read any further.

this article is one more piece of evidence that Joseph Schumpeter was correct in his prediction that capitalists will be the agents of the demise of capitalism.

“Only Jon Huntsman, languishing in the polls, has spoken clearly about the need to end the 'too big to fail' model.”

Really? Ron Paul has rails against bailouts, claiming that they help create “too big to fail”, yet the voice of Jon-come-lately reaches your ear. Selective hearing perhaps?

The way to end “too big to fail” is to let them fail! Risk of loss is a great regulator, but only if the bad bets are allowed to lose. What we've done instead is socialize the risk (and loss) while privatizing the rewards, thus giving incentive to bet with the tax payer's money.

Bring back Glass-Steagall for starters; split up the Wall Street “banks” into broker/dealers, hedge funds, investment banks, insurance companies and savings banks. Make it clear that they stand or fall on their own.
Practicality won't win the debate, because most of us as individuals really don't have much practical control, beyond personal decisions about working and spending, which are not the areas in debate. But we do have beliefs, some more towards freedom and progress, others more towards fairness (community) and security.

Capitalism is plenty more practical. Assuming reasonably that people who have saved funds and wish to invest them will seek positive and somewhat secure returns, each making use of such information as he or she has, that the system as a whole will in fact send capital wherever produces the "best" combination of high and secure returns, which combination requires progress, which over time improves almost everything.

AND the distributed decision-making (a) rarely screws up an enormous amount of policy at the same time in the same way and (b) PLACES THE RESULTS IN THE HANDS OF INDIVIDUALS, acting ONE AT A TIME, in their investing, managerial, working, and purchasing decisions.

It's that last one that tames capitalism to human needs and desires, not the darn government!

In contrast, when government moves beyond safety, law, and sound money, it had better stop at taxing and spending for redistribution purposes. Collective decisions about things other than the basic architecture of the society are rarely anything but disasters, for mobs are unchecked by morality and hard to check by force, particularly with a Military Establishment at their command, where as individuals both rich and poor are subject to some constraints, both internal and external.
This quote struck me in the article: "In other words, what would govern the financial industry in a future crisis—just as in the last one—would be the panicked, unpredictable rule of men, not a calm, predictable rule of law."

The rule of law is what makes Western Democracies stronger than other countries. We have to pass laws that make it clear no bank is too big to fail. Systemically important banks must either be broken up or run like utilities. Investment banks and depository banks should be separated.

We should also put back in the basic controls, like a 20% down payment.

The rule of law allows everyone to know what the rules of the game are, so we remove much of the fear and uncertainty facing markets today.

"Only Jon Huntsman.."??? Really??! Nicole you are no better than the politicians and bureaucrats who are responsible for our economic malaise.
Alena Hromádková,Prague February 10, 2012 at 1:49 PM
The end of the analysis mentioning Mr Andy Stern´s image of America looking for China as a better model nearly killed me. Is it true or did Orwell resurrect and wrote a second volume of his ´1984?´.
Robert Charles Van Orden February 10, 2012 at 3:43 AM

Re: Nicole Gelinas' essay I just read and commented on:

I just (accidently) discovered the VERY small green and white colored ad for a book she has written (AFTER THE FALL), and which, obviously,
the essay was taken, in a very obscure placement
1/4 of the way down the article, on the left side (I suggest that, in future, an ad for a book by the article's author, be placed at the
very BOTTOM left, so guys like me, deeply immersed in a dramatic essay, can see the damn
thing, know the essay comes from that ad's book
and, buy and read it).

There is NO mention of the BOOK in the article,
anywhere, to alert the reader of its existence.

Thanks for reading my comments.
Robert Charles Van Orden February 10, 2012 at 3:01 AM
THIS is an article to be framed and nailed on ALL the walls of anyone's house and office!

It is the most lucid, clear, reasoned, logical,
intellectually honest and problem-solving treatise ever devised, pulls no punches and stabs the evildoers right in the eye with their
own dishonest torture devices of evasion,
dishonesty and motivational terrorism.

You need to PUSH this brilliant essay to every
single individual worthy of the name CAPITALIST,
as a shock treatment of naked truth, and, allow
hundreds and thousands of companies (including
members of both Houses of Congress) who can republish and distribute it to all of their members.

Thank you, Nicole, for such an classic and truly enlightened essay.
Well understood and well written without getting bogged down in the specifics of the errors made.
Great article. I was waiting for someone to (finally) put into words what I've been thinking.
In the United States, government intervention was at the behest of the financial institutions.
Repeal of the Glass-Steagall Act was only one instance of government doing the bidding of large financial institutions. Basel I was also a wrong headed product of this intervention slicing up capital requirements.
Ah, "market failure", the exciting, rhetorical invention of the left that lets them make some sort of semi-coherent response to the collapse of communism.

Sorry kids but all you're arguing for is "communism-lite" and that's a argument that's already losing its edge.

Of course you guys don't care, do you? As long as you keep coming up with meaningless formulations like "communism" and "market failure" you'll be able to tap into the greed of people in pursuit of your dream of being taken care of by people who, for inexplicable but probably unimportant reasons, are willing to take care of you.

Fortunately, the collapse of communism, and the erosion of the left in democratic nations, makes it clear that your hope is destined to be unfulfilled.
This invisible hand fixation of yours is getting tiresome.
I think the articles' main point is that it was government intervention that caused market failure, not market failure requiring government intervention. See also: Fannie and Freddy.

A terrific read, well done.
Not difficult to understand why some are skeptical about markets given that the whole mess originated from a market failure of biblical proportions
Our present economic condition arises from one simple fact: the more and the more often government intervenes in the economy, the fewer and fewer productive business exist. Businesses which survive in an era of increasing government interventions are those which become captive of the political process and cease responding to economic factors. From a slightly different perspective, all government intervention consists in favoring one group of men and women over all others. Eventually, there is no one left in any given sector of the economy to lose 'market share' or to be 'denied entry into the marketplace' by means of government action in order to advance the interests of the government's favorites. We are at that point: there is no one left to sacrifice to the benefit of the government and their cronies apart from other cronies. So they do little if any genuine innovation or improvemnt or increases in production, wealth creation and so on. We have run out of 'other people's money' to quote Ms. Thatcher and we have run out of businesses for the government to ruin for the benefit of their friends and allies. Result? Economic catastrophe, because when you vote for the impossible, the all-too possible ruin becomes the consequence.